Bill Text: IL SB3522 | 2011-2012 | 97th General Assembly | Introduced

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Amends the Residential Mortgage License Act of 1987, the High Risk Home Loan Act, and the Interest Act. Limits the imposition of prepayment penalties in connection with high risk home loans. Limits the size of balloon payments in connection with high risk home loans. Limits the imposition of late fees. Effective January 1, 2013.

Spectrum: Partisan Bill (Democrat 24-0)

Status: (Failed) 2013-01-08 - Session Sine Die [SB3522 Detail]

Download: Illinois-2011-SB3522-Introduced.html

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97TH GENERAL ASSEMBLY State of Illinois 2011 and 2012 SB3522 Introduced 2/8/2012, by Sen. Jacqueline Y. Collins SYNOPSIS AS INTRODUCED:
205 ILCS 635/5-8
815 ILCS 137/10
815 ILCS 137/30
815 ILCS 137/35 new
815 ILCS 137/35.5 new
815 ILCS 137/55
815 ILCS 137/80
815 ILCS 137/80.5 new
815 ILCS 137/80.6 new
815 ILCS 137/90.5 new
815 ILCS 137/145
815 ILCS 205/4.1a from Ch. 17, par. 6406
Amends the Residential Mortgage License Act of 1987, the High Risk Home Loan Act, and the Interest Act. Limits the imposition of prepayment penalties in connection with high risk home loans. Limits the size of balloon payments in connection with high risk home loans. Limits the imposition of late fees. Effective January 1, 2013.
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HOUSING AFFORDABILITY IMPACT NOTE ACT MAY APPLY
A BILL FOR
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AN ACT concerning business.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Residential Mortgage License Act of 1987 is
amended by changing Section 5-8 as follows:
(205 ILCS 635/5-8)
Sec. 5-8. Prepayment penalties.
(a) No licensee may make, provide, or arrange a mortgage
loan with a prepayment penalty unless the licensee offers the
borrower a loan without a prepayment penalty, the offer is in
writing, and the borrower initials the offer to indicate that
the borrower has declined the offer. In addition, the licensee
must disclose the discount in rate received in consideration
for a mortgage loan with the prepayment penalty.
(b) If a borrower declines an offer required under
subsection (a) of this Section, the licensee may include,
except as prohibited by Section 30 of the High Risk Home Loan
Act, a prepayment penalty that extends no longer than three
years or the first change date or rate adjustment of a variable
rate mortgage, whichever comes earlier, provided that, if a
prepayment is made during the fixed rate period, the licensee
shall receive an amount that is no more than:
(1) 3% of the total loan amount if the prepayment is

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made within the first 12-month period following the date
the loan was made;
(2) 2% of the total loan amount if the prepayment is
made within the second 12-month period following the date
the loan was made; or
(3) 1% of the total loan amount if the prepayment is
made within the third 12-month period following the date
the loan was made, if the fixed rate period extends 3
years.
(c) Notwithstanding any provision in this Section,
prepayment penalties are prohibited in connection with the sale
or destruction of a dwelling secured by a residential mortgage
loan.
(d) This Section applies to loans made, refinanced,
renewed, extended, or modified on or after the effective date
of this amendatory Act of the 95th General Assembly.
(Source: P.A. 95-691, eff. 6-1-08.)
Section 10. The High Risk Home Loan Act is amended by
changing Sections 10, 30, 55, 80, and 145 and by adding
Sections 35, 35.5, 80.5, 80.6, and 90.5 as follows:
(815 ILCS 137/10)
Sec. 10. Definitions. As used in this Act:
"Approved credit counselor" means a credit counselor
approved by the Director of Financial Institutions.

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"Bona fide discount points" means loan discount points that
are knowingly paid by the consumer for the purpose of reducing,
and that in fact result in a bona fide reduction of, the
interest rate or time price differential applicable to the
mortgage.
"Borrower" means a natural person who seeks or obtains a
high risk home loan.
"Commissioner" means the Commissioner of the Office of
Banks and Real Estate.
"Department" means the Department of Financial
Institutions.
"Director" means the Director of Financial Institutions.
"Good faith" means honesty in fact in the conduct or
transaction concerned.
"High risk home loan" means a consumer credit transaction,
other than a reverse mortgage, that is secured by the
consumer's principal dwelling if: home equity loan in which (i)
at the time of origination, the annual percentage rate exceeds
by more than 6 percentage points in the case of a first lien
mortgage, or by more than 8 percentage points in the case of a
junior mortgage, the yield on U.S. Treasury securities having
comparable periods of maturity to the loan maturity as of the
fifteenth day of the month immediately preceding the month in
which the application for the loan is received by the lender,
or (ii) the loan documents permit the creditor to charge or
collect prepayment fees or penalties more than 36 months after

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the transaction closing or such fees exceed, in the aggregate,
more than 2% of the amount prepaid, or (iii) the total points
and fees payable in connection with the transaction by the
consumer at or before closing will exceed the greater of 5% of
the total loan amount or $800, except that bona fide loan
discount points may be excluded as provided for in Section 35
of this Act. The $800 figure shall be adjusted annually on
January 1 by the annual percentage change in the Consumer Price
Index for All Urban Consumers for all items published by the
United States Department of Labor. For purposes of this
definition, the annual percentage rate of interest shall be
determined based on the following rate: (i) in the case of a
fixed rate transaction in which the annual percentage rate will
not vary during the term of the loan, the interest rate in
effect on the date of consummation of the transaction; (ii) in
the case of a transaction in which the rate of interest varies
solely in accordance with an index, the interest rate
determined by adding the index rate in effect on the date of
consummation of the transaction to the maximum margin permitted
at any time during the loan agreement; and (iii) in the case of
any other transaction in which the rate may vary at any time
during the term of the loan for any reason, the interest
charged on the transaction at the maximum rate that may charged
during the term of the loan. "High risk home loan" does not
include a loan that is made primarily for a business purpose
unrelated to the residential real property securing the loan or

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to an open-end credit plan subject to 12 CFR 226 (2000, no
subsequent amendments or editions are included).
"Home equity loan" means any loan secured by the borrower's
primary residence where the proceeds are not used as purchase
money for the residence.
"Lender" means a natural or artificial person who
transfers, deals in, offers, or makes a high risk home loan.
"Lender" includes, but is not limited to, creditors and brokers
who transfer, deal in, offer, or make high risk home loans.
"Lender" does not include purchasers, assignees, or subsequent
holders of high risk home loans.
"Office" means the Office of Banks and Real Estate.
"Points and fees" means all items considered required to be
disclosed as points and fees under 12 CFR 226.32 (2000, or as
initially amended pursuant to Section 1431 of the federal
Dodd-Frank Act with no subsequent amendments or editions
included, whichever is later); the premium of any single
premium credit life, credit disability, credit unemployment,
or any other life or health insurance that is financed directly
or indirectly into the loan; and compensation paid directly or
indirectly by a consumer or creditor to a mortgage broker from
any source, including a broker that originates a loan in its
own name in a table-funded transaction, not otherwise included
in 12 CFR 226.4; the maximum prepayment fees and penalties that
may be charged or collected under the terms of the credit
transaction; all prepayment fees or penalties that are incurred

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by the consumer if the loan refinances a previous loan made or
currently held by the same creditor or an affiliate of the
creditor; and premiums or other charges payable at or before
closing, including premiums or charges financed directly or
indirectly into the loan, for any credit life, credit
disability, credit unemployment, credit property, other
accident, loss of income, life, or health insurance or payments
directly or indirectly for any debt cancellation or suspension
agreement or contract, except that insurance premiums or debt
cancellation or suspension fees calculated and paid in full on
a monthly basis shall not be considered financed by the
creditor. "Points and fees" does not include any insurance
premium provided by an agency of the Federal Government or an
agency of a State; any insurance premium paid by the consumer
after closing; and any amount of a premium, charge, or fee that
is not in excess of the amount payable under policies in effect
at the time of origination under Section 203(c)(2)(A) of the
National Housing Act (12 U.S.C. 1709(c)(2)(A)), provided that
the premium, charge, or fee is required to be refundable on a
pro-rated basis and the refund is automatically issued upon
notification of the satisfaction of the underlying mortgage
loan.
"Reasonable" means fair, proper, just, or prudent under the
circumstances.
"Servicer" means any entity chartered under the Illinois
Banking Act, the Savings Bank Act, the Illinois Credit Union

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Act, or the Illinois Savings and Loan Act of 1985 and any
person or entity licensed under the Residential Mortgage
License Act of 1987, the Consumer Installment Loan Act, or the
Sales Finance Agency Act who is responsible for the collection
or remittance for, or has the right or obligation to collect or
remit for, any lender, note owner, or note holder or for a
licensee's own account, of payments, interest, principal, and
trust items (such as hazard insurance and taxes on a
residential mortgage loan) in accordance with the terms of the
residential mortgage loan, including loan payment follow-up,
delinquency loan follow-up, loan analysis, and any
notifications to the borrower that are necessary to enable the
borrower to keep the loan current and in good standing.
"Total loan amount" has the same meaning as that term is
given in 12 CFR 226.32 and shall be calculated in accordance
with the Federal Reserve Board's Official Staff Commentary to
that regulation.
(Source: P.A. 93-561, eff. 1-1-04.)
(815 ILCS 137/30)
Sec. 30. No prepayment Prepayment penalty. A high risk home
loan may not contain terms under which a consumer must pay a
prepayment penalty for paying all or part of the principal
before the date on which the principal is due. For purposes of
this Section, any method of computing a refund of unearned
scheduled interest is a prepayment penalty if it is less

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favorable to the consumer than the actuarial method as that
term is defined by Section 933(d) of the federal Housing and
Community Development Act of 1992, 15 U.S.C. 1615(d). For any
loan that is subject to the provisions of this Act and is not
subject to the provisions of the Home Ownership and Equity
Protection Act of 1994, no lender shall make a high risk home
loan that includes a penalty provision for payment made: (i)
after the expiration of the 36-month period following the date
the loan was made; or (ii) that is more than:
(1) 3% of the total loan amount if the prepayment is
made within the first 12-month period following the date
the loan was made;
(2) 2% of the total loan amount if the prepayment is
made within the second 12-month period following the date
the loan was made; or
(3) 1% of the total loan amount if the prepayment is
made within the third 12-month period following the date
the loan was made.
(Source: P.A. 93-561, eff. 1-1-04.)
(815 ILCS 137/35 new)
Sec. 35. Bona fide discount points. For the purposes of
determining whether the amount of points and fees meets the
definition of "high risk home loan" under this Act, either the
amounts described in paragraph (1) or (2) of this Section, but
not both, shall be excluded:

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(1) Up to and including 2 bona fide discount points
payable by the consumer in connection with the mortgage,
but only if the interest rate from which the mortgage's
interest rate will be discounted does not exceed by more
than one percentage point:
(A) the average prime offer rate, as defined in
Section 129C of the federal Truth in Lending Act (15
U.S.C. 1639); or
(B) if secured by a personal property loan, the
average rate on a loan in connection with which
insurance is provided under Title I of the National
Housing Act (12 U.S.C. 1702 et seq.).
(2) Unless 2 bona fide discount points have been
excluded under paragraph (1), up to and including one bona
fide discount point payable by the consumer in connection
with the mortgage, but only if the interest rate from which
the mortgage's interest rate will be discounted does not
exceed by more than 2 percentage points:
(A) the average prime offer rate, as defined in
Section 129C of the federal Truth in Lending Act (15
U.S.C. 1639); or
(B) if secured by a personal property loan, the
average rate on a loan in connection with which
insurance is provided under Title I of the National
Housing Act (12 U.S.C. 1702 et seq.).
Paragraphs (1) and (2) shall not apply to discount points

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used to purchase an interest rate reduction unless the amount
of the interest rate reduction purchased is reasonably
consistent with established industry norms and practices for
secondary mortgage market transactions.
(815 ILCS 137/35.5 new)
Sec. 35.5. No balloon payments. No high risk home loan may
contain a scheduled payment that is more than twice as large as
the average of earlier scheduled payments. This Section does
not apply when the payment schedule is adjusted to the seasonal
or irregular income of the consumer.
(815 ILCS 137/55)
Sec. 55. Financing of points and fees. No lender shall
transfer, deal in, offer, or make a high risk home loan that
finances points and fees in excess of 6% of the total loan
amount. No lender shall transfer, deal in, offer, or make a
high risk home loan that finances any points and fees if the
creditor or an affiliate of the creditor is the noteholder of
the note being financed. No lender shall transfer, deal in,
offer, or make a high risk home loan that finances any
prepayment fee or penalty payable by the consumer in a
refinancing transaction.
(Source: P.A. 93-561, eff. 1-1-04.)
(815 ILCS 137/80)

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Sec. 80. Late payment fee. A lender shall not transfer,
deal in, offer, or make a high risk home loan that provides for
a late payment fee, except under the following conditions:
(1) the late payment fee shall not be in excess of 4%
5% of the amount of the payment past due;
(2) the late payment fee shall only be assessed for a
payment past due for 15 days or more;
(3) the late payment fee shall not be imposed more than
once with respect to a single late payment;
(4) a late payment fee that the lender has collected
shall be reimbursed if the borrower presents proof of
having made a timely payment; and
(5) a lender shall treat each payment as posted on the
same business day as it was received by the lender,
servicer, or lender's agent or at the address provided to
the borrower by the lender, servicer, or lender's agent for
making payments.
(Source: P.A. 93-561, eff. 1-1-04.)
(815 ILCS 137/80.5 new)
Sec. 80.5. Coordination with subsequent late fees. If a
payment is otherwise a full payment for the applicable period,
is paid on its due date or within an applicable grace period,
and the only delinquency or insufficiency of payment is
attributable to any late fee or delinquency charge assessed on
any earlier payment, no late fee or delinquency charge may be

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imposed on the payment.
(815 ILCS 137/80.6 new)
Sec. 80.6. Failure to make installment payment. If, in the
case of a loan agreement the terms of which provide that any
payment shall first be applied to any past principal balance,
the consumer fails to make an installment payment and the
consumer subsequently resumes making installment payments but
has not paid all past due installments, the creditor may impose
a separate late payment charge or fee for any principal due
(without deduction due to late fees or related fees) until the
default is cured.
(815 ILCS 137/90.5 new)
Sec. 90.5. Modification and deferral fees prohibited. A
lender, successor in interest, assignee, or any agent of any of
the foregoing may not charge a consumer any fee to modify,
renew, extend, or amend a high risk home loan or to defer any
payment due under the terms of the loan.
(815 ILCS 137/145)
Sec. 145. Subterfuge prohibited. No lender, with the intent
to avoid the application or provisions of this Act, shall (i)
divide a loan transaction into separate parts, or (ii)
structure a loan transaction as an open-end credit plan or
another form of loan, or (iii) perform any other subterfuge.

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(Source: P.A. 93-561, eff. 1-1-04.)
Section 15. The Interest Act is amended by changing Section
4.1a as follows:
(815 ILCS 205/4.1a) (from Ch. 17, par. 6406)
Sec. 4.1a. Charges for and cost of the following items paid
or incurred by any lender in connection with any loan shall not
be deemed to be charges for or in connection with any loan of
money referred to in Section 6 of this Act, or charges by the
lender as a consideration for the loan referred to in this
Section:
(a) hazard, mortgage or life insurance premiums,
survey, credit report, title insurance, abstract and
attorneys' fees, recording charges, escrow and appraisal
fees, and similar charges.
(b) in the case of construction loans, in addition to
the matters referred to in clause (a) above, the actual
cost incurred by the lender for services for making
physical inspections, processing payouts, examining and
reviewing contractors' and subcontractors' sworn
statements and waivers of lien and the like.
(c) in the case of any loan made pursuant to the
provisions of the Emergency Home Purchase Assistance Act of
1974 (Section 313 of the National Housing Act, Chapter B of
Title 12 of the United States Code), in addition to the

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matters referred to in paragraphs (a) and (b) of this
Section all charges required or allowed by the Government
National Mortgage Association, whether designated as
processing fees, commitment fees, loss reserve and
marketing fees, discounts, origination fees or otherwise
designated.
(d) in the case of a single payment loan, made for a
period of 6 months or less, a regulated financial
institution or licensed lender may contract for and receive
a maximum charge of $15 in lieu of interest. Such charge
may be collected when the loan is made, but only one such
charge may be contracted for, received, or collected for
any such loan, including any extension or renewal thereof.
(e) if the agreement governing the loan so provides, a
charge not to exceed the rate permitted under Section 3-806
of the Uniform Commercial Code-Commercial Paper for any
check, draft or order for the payment of money submitted in
accordance with said agreement which is unpaid or not
honored by a bank or other depository institution.
(f) if the agreement governing the loan so provides,
for each loan installment in default for a period of not
less than 10 days, a charge in an amount not in excess of
5% of such loan installment. Only one delinquency charge
may be collected on any such loan installment regardless of
the period during which it remains in default. Payments
timely received by the lender under a written extension or

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deferral agreement shall not be subject to any delinquency
charge.
Notwithstanding items (k) and (l) of subsection (1) of
Section 4 of this Act, the lender, in the case of any nonexempt
residential mortgage loan, as defined in Section 1-4 of the
Residential Mortgage License Act of 1987, other than a high
risk home loan as defined in Section 10 of the High Risk Home
Loan Act, shall have the right to include a prepayment penalty
that extends no longer than the fixed rate period of a variable
rate mortgage provided that, if a prepayment is made during the
fixed rate period and not in connection with the sale or
destruction of the dwelling securing the loan, the lender shall
receive an amount that is no more than:
(1) 3% of the total loan amount if the prepayment is
made within the first 12-month period following the date
the loan was made;
(2) 2% of the total loan amount if the prepayment is
made within the second 12-month period following the date
the loan was made; or
(3) 1% of the total loan amount if the prepayment is
made within the third 12-month period following the date
the loan was made, if the fixed rate period extends 3
years.
This Section applies to loans made, refinanced, renewed,
extended, or modified on or after the effective date of this
amendatory Act of the 95th General Assembly.

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Where there is a charge in addition to the stated rate of
interest payable directly or indirectly by the borrower and
imposed directly or indirectly by the lender as a consideration
for the loan, or for or in connection with the loan of money,
whether paid or payable by the borrower, the seller, or any
other person on behalf of the borrower to the lender or to a
third party, or for or in connection with the loan of money,
other than as hereinabove in this Section provided, whether
denominated "points," "service charge," "discount,"
"commission," or otherwise, and without regard to declining
balances of principal which would result from any required or
optional amortization of the principal of the loan, the rate of
interest shall be calculated in the following manner:
The percentage of the principal amount of the loan
represented by all of such charges shall first be computed,
which in the case of a loan with an interest rate in excess of
8% per annum secured by residential real estate, other than
loans described in paragraphs (e) and (f) of Section 4, shall
not exceed 3% of such principal amount. Said percentage shall
then be divided by the number of years and fractions thereof of
the period of the loan according to its stated maturity. The
percentage thus obtained shall then be added to the percentage
of the stated annual rate of interest.
(Source: P.A. 95-691, eff. 6-1-08.)
Section 99. Effective date. This Act takes effect January
1, 2013.